Gintax answers Sunday Independent readers’ questions on tax.
Article published on 15 August 2021

Q I am looking for some information on options for retaining the home I currently live in. My mother inherited the home in 2009 following the death of her parents (my grandparents) within a few weeks of each other. It was her family home before her marriage to my father. I have been living in that home for nine years now. I'm single and work part-time. My parents still reside in their marital home and are in their 70s now.

It is their intention that I inherit the house I am living in upon their death. The home is my mother's family home, the title is in her name and my three sisters are expected to inherit my parent's current marital home.

Will there be tax implications for me or my parents in this regard? As my mother lives in the marital home and not her family home, I don’t think the dwelling house exemption applies?

I moved into the house in January 2012. House prices have hugely inflated over the last nine years. The house is now valued around the €480,000 mark — but it was valued at €245,000 in 2012 when I moved in. On a side note, I have been paying my parents €100,000 over the course of 13 years for the house. Rose, Dublin North

A On your mother’s demise, the tax that will be relevant here is Capital Acquisitions Tax (CAT). This tax applies to inheritances and is the liability of the beneficiary. Normally, CAT at a rate of 33pc applies on the value of any inheritances received above the recipient’s tax-free threshold. The threshold is currently €335,000 on all gifts or inheritances from parents. Therefore, assuming you have received no prior gifts from your parents, an inheritance now of the property would result in a taxable inheritance of €145,000 (being the market value of the property exceeding your tax-free threshold). This would give rise to a tax liability for you of just under €50,000.

The dwelling house exemption allows a child to inherit a family home tax-free in certain circumstances. Generally, the property would also need to have been the only or main home of the person who died but if (say) you were aged 65 or over at the date of inheritance, this condition does not apply. For now, this is not relevant as you are younger than 65. You would also need to satisfy other conditions such as not having an interest in any other residential property.

You mention you have paid your parents a sum of money for the property — I presume this is market value rent and so will not impact the CAT analysis above. Your mother will be liable for income taxes on this rental income. If no- or below-market value rent was charged to you by your parents for the use of the property, this would essentially be regarded as a taxable gift to you and erode your €335,000 tax-free threshold.

A question often asked by clients is the impact of transferring the property now as a gift. Should your mother transfer the property she inherited to you now, she would fall within the scope of Capital Gains Tax (CGT — the tax paid on any capital gain made following the disposal of an asset). The CGT exemption on principal private properties does not apply here as the house was not your mother's primary residence at any time during her ownership. CGT at 33pc would therefore arise on any gain — the gain being the difference between the value of the property in 2009 and the market value at the time of transfer. You would also have a CAT liability on the value of the gift in excess of the €335,000 threshold. However, you should be able to offset your mother’s CGT against your CAT liability. Stamp duty at 1pc would also arise for you. To the extent that you agree to pay your mother a sum of money for the house, this would reduce the value of the taxable gift by that amount.